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28 August 2020

Enforcement and Modernisation Directive (EU) 2019/2161 (the Omnibus Directive)

The EU New Deal for Consumers initiative, adopted by the EU Commission on 11 April 2018, aimed at strengthening enforcement of EU consumer law in light of a growing risk of EU-wide infringements and at modernising EU consumer protection rules in view of market developments. 

The initiative was composed of a proposal for a Directive on ‘better enforcement and modernisation’ as well as a proposal for a Directive on ‘representative actions for the protection of the collective interests of consumers’. Following these proposals, the Enforcement and Modernisation Directive (EU) 2019/2161 (also known as the 'Omnibus Directive') was adopted by the European Parliament and the Council on 27 November 2019.

The Omnibus Directive aims to strengthen consumer rights through increased transparency measures and enhanced enforcement measures and will update the following four existing consumer protection Directives:

  • Unfair Contract Terms Directive (93/13/EEC);
  • Price Indication Directive (98/6/EC);
  • Unfair Commercial Practices Directive (2005/29/EC); and
  • Consumer Rights Directive (2011/83/EU).

The Omnibus Directive came into force on 7 January 2020. Member states have until 28 November 2021 to adopt and publish measures to comply with the Omnibus Directive, but will not have to apply those measures until 28 May 2022. Compliance will involve various updates to domestic law, which implement the various consumer protection legislation, in part to address commercial practices in the online world. 

Although the Omnibus Directive is unlikely to be required to be implemented in the UK post-Brexit; UK traders who target EU consumers need to take note. EU consumer legislation applies to all traders targeting EU based consumers, regardless of the trader’s location. Therefore, UK traders will need to use the two-year window to ensure their EU-facing practices comply with the Omnibus Directive or they could face large GDPR-style penalties.

Summary of the Omnibus Directive

The key changes that will be introduced by the Omnibus Directive are as follows:

Increased Powers of Enforcement:

More effective penalties for cross-border infringements

Issue - Today, EU consumer authorities are not sufficiently equipped to tackle ‘mass harm situations’ that affect large numbers of consumers across the EU. When a company breaks consumer rules, the penalties vary widely across the EU and are often quite small, even for very serious infringements. As a result, they do little to prevent dishonest traders from cheating.

New Rule - National authorities will have a power to impose effective, proportionate and dissuasive penalties in a coordinated manner when they work together on major cross-border infringements that affect consumers in several EU Member States. In these cases, national authorities will have the power to impose a fine of up to 4% of the trader’s turnover, or up to €2 million when information on turnover is not available. Member States are free to keep or introduce higher maximum fines.

Compensation (and other individual remedies) for consumers

Issue - Existing EU consumer legislation enables national authorities to stop and prevent unfair commercial practices, but does not give consumers a direct right to compensation when they are harmed by such practices.

New Rule - Consumers in all Member States have the right to individual remedies, (such as ending the contract, obtaining a price reduction or financial compensation) when they are affected by unfair commercial practices, such as misleading marketing.

Tackling dual quality of consumer goods

Issue - Goods sold in identical or similar packaging sometimes have a different composition or characteristics compared to the same goods in other EU countries (‘dual quality’). Consumers can be led into believing that they are buying the same product when they are not.

New Rule - National enforcement authorities will have stronger powers to stop misleading marketing of dual quality goods. The Directive does however acknowledge that differences can be justified by objective factors, such as national rules on product composition, use of local or seasonal ingredients or trader’s voluntary commitment to promote healthier food. If such factors apply, traders must be clear which objective factors apply.

Increased Transparency Obligations and Extension of Consumer Rights:

Transparency on online market places
 

Issue - Today when consumers shop on online marketplaces, they do not always know who they are purchasing the goods or the services from. It may be a professional trader but it may be a private individual operating their own ‘shop’. Not knowing the identity of the supplier is a problem because if something goes wrong, consumer protection rules do not apply when buying from another private individual.

New Rule - Consumers must be informed whether the person selling the goods or services online is a trader or another private individual, and they must be warned that EU consumer protection rules do not apply when the supplier is not a trader. 

Ranking of an offer

Issue - When looking for an offer on an online marketplace or a price comparison site, many consumers only look at the top results. It is therefore important that consumers know what criteria are used to rank the offers, and if an offer appearing on the search page is paid advertising.

New Rule - Platform providers must inform consumers about the main criteria determining the ranking of the offers provided in response to a search query, for example, whether these offers are ranked based on price, distance, consumer ratings or a combination of different criteria. They must also clearly indicate when the ranking of the search results is based on payments received from the listed traders.

Transparency about consumer reviews

Issue - The reviews posted on a platform or a trader’s website often influence a consumer’s purchasing decision. However, those reviews supposedly written by other consumers are not always genuine.

New Rule - Submitting or commissioning someone to submit fake reviews or endorsements or otherwise manipulating consumer reviews is expressly prohibited. Traders will be allowed to claim that the reviews were submitted by genuine consumers only if they take reasonable and proportionate steps to check this, such as having checks in place to ensure only consumers who purchased or used the goods or services may submit a review. Traders making consumer reviews available must also explain how to consumers they ensure the reviews come from genuine consumers (i.e. by explaining the checks they have put in place).

Personalised Pricing

Issue - Based on consumer purchase history or the webpages consumers visit, traders may use algorithms to detect whether you may have a special interest in one of their goods or services and then increase the price of those goods or services.

New Rule - Consumers will be informed each time the price presented to them online is based on an algorithm taking into account their personal behaviour, to ensure consumers  are aware of the risk that the asking price may have increased specifically for them.

Consumer rights for free digital services

Issue - Many consumers use “free” digital services, such as cloud services or social media, for which they do not pay.  Today, some important EU consumer rights only apply to paid for services. 

New Rule - Providers of these “free” services must provide clear information about, for example, the main characteristics of the service, the contract duration and the termination conditions. The consumer will also be able to cancel the online contract within 14 days without providing a reason.

Other Amendments:

Prohibition of reselling event tickets bought through bots

Issue - A trader may use a bot to buy 1000 concert tickets online, with a view to reselling them at a higher price, circumventing the limit of maximum 10 tickets per buyer imposed by the event organizer.

New Rule - Traders are prohibited from reselling event tickets bought through bots resulting in consumers being able to purchase event tickets at a fair price and preventing breaches of the limits or other rules set by the primary ticket seller.

Ensuring genuine price reduction claims

Issue - An online shop advertises a product at “30% off”. In reality, the “reduced” price is the same as the normal price because the seller had increased it just before announcing the price cut.

New Rule - For every price reduction claim, sellers will have to indicate as a reference price the lowest price applied within a period of at least 30 days preceding the price reduction announcement. 

Better protection against unfair practices in doorstep selling and commercial excursions

Issue - EU law prohibits misleading or aggressive marketing practices, including when traders make unsolicited commercial visits to a consumer’s home (doorstep selling) or organise commercial excursions for promoting and selling goods.

New Rule –Member States will have a power to take additional national measures (such as stronger rules on the right of withdrawal) to better protect their consumers in the context of doorstep selling and commercial excursions. The measures must be justified, non-discriminatory and proportionate.

Future Developments

As touched on above, another key part of the EU New Deal for Consumers initiative is the introduction of collective redress procedures through the Directive on representative actions for the protection of the collective interests of consumers 2018/0089 (COD). This Directive aims to further modernise the framework for the enforcement of consumer rights and introduces "class action" style litigation for consumers across the EU. Working in parallel to the new enforcement actions and penalties introduced through the Omnibus Directive the Representative Actions Directive further strengthens consumer protection enforcement.

In terms of the timeline for its introduction, the text of the Directive was agreed and adopted by the Council and the European Parliament on 30 June 2020. A final vote will likely take place in December 2020 and if successful the draft Directive would come into force 20 days after the vote. Member states will then have two years in which to implement it into national legislation, with a further six months to apply those measures, meaning that widespread collective redress procedures are unlikely to be available for consumers until 2023 at the earliest.

Brexit Implications

The UK will no longer be an EU member state, and the transition period will have expired before the new rules must be applied. However, UK traders selling to consumers in EU member states will have to comply with the new rules and the UK may choose to align with them. To ensure harmonisation with the EU, the UK Government has shown commitment to introducing similar penalties and enforcement action; its Consumer Green Paper proposed civil fining powers for breaches of consumer protection legislation, with such fines capped at 10% of the firm's worldwide turnover (i.e. going further than the Omnibus Directive requirements).

The question of whether UK consumers will benefit from the rights granted by the Omnibus Directive, once the UK becomes a third country, is still unknown.

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